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Tax change hits sales of luxury company cars

Tightened taxation rules affected sales of luxury company cars with price tags exceeding 100 million won ($86,600), most of which are foreign car brands, in the first quarter of this year, an industry source said.

According to the Korea Automobile Importers & Distribution Association, the number of imported cars registered by companies fell to 19,564 units in the first three months, a 20.5 percent drop from the same period of last year.

“Behind the sharp fall is the tightened tax deduction rule on company cars for private use,” the source said. Previously, there was no restriction on the use of company cars for private use, so many luxury car car buyers registered their vehicles as company cars.

From the beginning of the year, however, tax authorities put a 10 million won cap on the annual operation costs of a company car -- which includes fuel, repair costs, insurance and tax payments -- for refundable expenses.

When the expense exceeds 10 million won, the company car owner must summit a detailed operational log to prove the car has been used for business purposes to claim the tax deduction.

The image of Lamborghini Huracan LP 580-2
The image of Lamborghini Huracan LP 580-2
The new tax rule hit sales of super cars the most, which have enjoyed double-digit growth for the past few years, For instance, sales of Bentley fell 45 percent to 66 units in the first quarter of the year. Rolls-Royce also saw a 12.5 percent fall in sales in the same period.

In response to the sales fall, super luxury car brands downplayed the impact of the new tax rule on their sales. “It is too early to tell what affected vehicle sales in the first quarter, given it takes more than three months on average for a Bentley car to be delivered to a customer after placing an order,” said Seo Young-jin, a spokesperson for Bentley Korea.

By Seo Jee-yeon (jyseo@heraldcorp.com)
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